How To Value A House?

Selling Properties Property Evaluation
#9

Dear DK sb, condition is the key for an old house and even for a new one for that matter.

Theoretically below should be the formula:

Valu = cost of land + cost of construction + 20% of cost of construction (premium) - 1% reduction in premeium for each year after construction - cost of repairs required

A very good condition house with 10 years after construction will have only 10% premium to cost of construction compared to 20% premium for newly build. Additionally cost of required repairs will also be subtracted.

We could have used a depreciation concept but I'm sticking to the same formula used earlier to keep the things simple.

#10

DK sb, final thing that must be remembered and very aptly added by Malik sb, market in Pakistan or anywhere in the world does not value property or any other assets using these formulas. Value is determined by demand and supply and is determined wmere buyers and sellers agree.

These valuation models and methods are just to have a comparison of what is being done is as per expectation. Theory has no influence on behavior of buyers and sellers, it's infect decoding of what they have done already. So it's buyers and sellers who agree on price not the theory.

#11

Thanks a lot Brother Syyed,

you have shared wonderful information with us .,

Here in zameen forum , there are many builders and construction line ppl and also designers ,but unfortunately i have noticed them using this forum only for their own advertisements, if they wish they can contribute a lot positive and informative stuff to this forum, ,,but unfortunately they don't share any thing positive , they only advertise themselves ,

I pray for the successful completion of your home , and brother after you are done with that please share your experience here thanks,

#12

Relationship between Rental Value and Sale Value of a house in Islamabad

http://realestateislamabad.blogspot.com/

There are various ways value of a house may be determined, one simple method is cost plus i.e. Market value of a plot on date of sale and construction cost with addition of a reasonable margin on date of sale. This method is more useful for new construction but would get trickier for a house that is not brand new. An easier method will be multiplies of rental value which has been described below.

The relationship, if any, between value of a house and the rental it fetches is an interesting one. It’s not rocket science to guess that value of a house is directly proportional to rental value however question remains if there is any way we could guess the value of a house based on the rental. The answer is yes and will be discussed in below line.

Value of a property could be measured as the numbers of years it takes to make value at the rate of current rental; this could also be called multiples of yearly rental and may be referred as Value to Rental Ratio (VRR). For Example current value of a house is 10 million and monthly rental is 50,000 then the rental will take 200 months or 19 years and 8 months (roughly 20 years) to generate 10 million. We could say that the value is 19 multiples of rental.

Having discussed multiples in above lines let’s see what factors determine the number of multiples a property is expected to have. The answer to this question depends on location, condition and demand for property at any point of time. Good location, nice condition and high demand would been top dollar whereas the value will start to decrease as the location and condition is bad and demand is low.

Ideal location, good condition and high demand could fetch as much lower range will be 25. Average location, condition and demand could be anywhere from 20 to 24 and then the value keeps going down. However very seldom the value will be lower than multiples of 15. Below is the summary in tabular form.

 

  Location Condition Demand Value in multiples of Yearly Rental (VRR)

Excellent Y Y Y 25 to 30

Average Y Y Y 20 to 24

Low Y Y Y 15 to 19

 

In an example where monthly rental is 10,000, theoretical maximum value will be 3.6 million (10,0001230=3,600,000), minimum value will be 1.8 million (10,000x12x15 = 1,800,000) and likely value will be 2.4 million (10,000x12x20 = 2,400,000).

Let’s try to test above formula in real life scenario, G-13 has average monthly rental of 50k per month for a 30x60 house. The sector is newly constructed, has good location and tends to be high in demand; the value is expected to be towards the higher end of the spectrum. Multiple of 30 puts the value at 19.8million and at multiple of 25 value comes down to 16.5 million, these theoretical values are pretty close to the real values in the market.

I-10 is a relatively old sector and location (proximity to pirawadhi) among other things pushes the sector towards the lower end of value. Average rent of 25X40 or 25x50 house is 40 thousand. Value of houses is expected to be around 10 million which is equal to 20 years rental. However some of the houses have high rental due to better condition and others have lower rental due to poor location and old construction etc.; the result is that price of houses is some cases is as low as 8.5 to 9 million and in other cases it goes as high as 13 to 14 million.

Real value is determined by market as per market mechanism, above is just to add to understanding how rental and sale value interact with each other. This will be of no use without understanding of market.

#13

Aoa,

You have to take the market value of the land which will always be calculated as per market.

The construction cost is a bit complicated.few things to be sure of

Is the current construction cost of an average priced contractor.and what kind of construction if it is a class or b class...........e.g

If the house is of A class construction which costs around lets say 2200 per sqft. And the construction is only a year old than cost of land and construction cost is to be calculated.which should give you the actual cost of a house.

If the house is over 5 years old than current cost of land and 25 to 30% of the construction cost should be deducted.....and if its more than 15 or 20 years old than more or less the cost of land is paid.....

#14

Thanks Syyed. Cost of construction is neglected part in this forum. Whenever anything related to construction comes on the forum, builders jump in and spoil most of the discussion. Beginners who need help get even more confused and leave the forum.

Good attempt by you.

By the way, my finished cost was 2400 even though structure was complete before 2013 budget. My friend's average or somewhat below average finish cost was 1850. Builder's finished cost was 2000. People making home around me had Rs 2500 finish who recently completed.

Umar Gul cricketer also finished home when I completed my grey structure. His finished cost was Rs 2200/-

We all discussed and shared our costs with each other to help.

#15

BR malik visit my threads you will get almost 50 % idea with regards to cost of construction…

#16

Malik sb, what is the are you are talking about, it must a very posh area, Umur Gul must be living in very high end Area.

For plot size of 10 Marla and below 2,000 will be very high if a person intends to construct for selling. Based on little exercise of surveying in middle class sector and societies of Islamabad people are paying around 2000 to 2200 for a constructed house plus the cost of land.

I'm planning to construct 10 Marla and have budget of 1,600 in mind for average finish but if it goes beyond that I will be stuck.

To understand it in a bit more detail what do you suggest will be cost of grey structure for average construction, my expectation is around 750 to 800 per square foot. Planning a covered area of 3,400 square foot and expecting a cost of 2.5 million to 2.8 million, how do you see this?

Once you reply I will also share the breakdown.

#17

@ HT sb, agree to your comment in general but the numbers are quite aggressive. 15 to 20 years do bring a lot of wear and tear but Prices don't go down to plot cost after this time unless a house is very poorly maintained.

In my formula im subtracting cost of repair at the end and this will go very high to make a house in running conditon in case it's not maintained properly. Every house needs significant spent after 5 years and major overhaul every 10 years.

Taking example of islamabd sectors I-8 to I-10, average age is around 15 years. I-9 and i-10 average is 20 plus and I-8 is in the range of 10 to 12 years. Price is still well over plot cost in I-9 and I-10; I-8 is really is ascendancy and is very very high as you must be aware yourself.

#18

@ Syyed. I am takkingt about E-11.

Somehow, my impression is that people guiding us before construction give wronh estimates. All labour contractors give wrong estimates. Carpenters give wrong estimates. On probing this impression myself and a friend of mine, we came to conclusion that workers want the owner to jump in a project or work. Rest, they know that owner will arrange money somehow or taking loans. If they give correct estimates, owner will be shy of jumping in and hence no work of workers. They are street smart and we are not. They constantly give you adrenaline injection that your cost are very good. Mr. X and Y and Z spent so much but still work quality was low. Purpose is that owner is happy and never object to your work.

One og my friend did construction recently in G-15 . Size 30x60. His cost of grey structure was 950.

When I look back, I think architects gave better estimates but we rejected it at that time because one wants to be optimist at start on construction.

Almost 4 of us were making house at same road. We discussed and helped each other. Every one of us were stuck due to wrong estimates. It was beyond anyone of us estimates.

Builders save a lot of money in structure. But after seeing home building by a builder close to my home where I was living on rent, I will never ever take builder's house. Its like outsourcing milk supply network to cats as they know a lot about milk.

#19

B.R. Malik Sahib, please keep writing, your opinions are reality based and will definitely benefit lots of us. In return, we can give you Dua’ and insha’Allah you will be rewarded in this world and the world hereafter for your good deeds. I read every word of you keenly, and actually copy it to a word file named “MUST READ MULTIPLE TIMES BEFORE AND DURING CONSTRUCTION OF MY OWN HOUSE”. Please keep writing.

#20

Thanks a lot for the encouragement :slight_smile:

#21

Dear Malik sb, thanks for the details, I was trying to to press thumbsup button but inadvertently pressed thumbs down, sorry for that … :slight_smile:

#22

Welcome. No problem.

If you need anymore information, would be happy to share.

#23

Good article Syyed. Although, it would be more helpful if you can tell us how you came up with the numbers of construction cost. Coincidentally, i have been working on an estimate for construction of house with covering area of around 4000 sqft and I came up with the same number as you i.e 1600/sqft for average finishing.

I have no actual experience of house construction and the estimates are based on current market prices for raw material and labour rates. Anyway here is the detailed breakdown:

Architect: 100000***

Boring: 140000

Sand/Crush: 220000

Bricks: 382500 @ 8.5 x 45000

Cement: 445500 @ 495 x 900

Steel: 588000 @ 85000 x 7{tons}

Water proofing and heat insulation: 150000

Marble: 320000

Marble (outside covered area): 150000***

Pipes: 310000

Electric Wires: 160000

Electric Fittings: 150000

Grills & railings: 295000

Aluminum Windows: 174000

Main Gate: 90000

Glass Work: 45000

Stone Wall: 90000

Paint: 280000

Woodwork (Doors, wardrobe, kitchens): 400000

Wood polishing: ?????***

Hardware Fittings: 90000

Bathrooms: 300000

Utility Connections: 120000

Labour - Civil Work: 1000000

Labour - Electric: 150000

Labour - Sanitation: 150000

Labour - Paint: 100000

Labour - Carpenter: 250000

Labour - Guard: 70000

It all adds up to a grand total of 6460000 (6710000***). I may have missed something but then again it is all a rough estimate. Experienced members and professional builders maybe able to point out some points I may have missed.

***Modified after BR Malik's input.

#24

Thanks brother zol,we will wish now some builder or contractor to come up and accept or contradict ZOL numbers with proof,

#25

I haven't found a single person building home who is not badly stuck in the end. It's not a one go shopping spree.

We bought first bag of cement at Rs 412/- and last bag which came only a week back for ramp was Rs 502/-.

Also, there are a lot of things out of covered area and on roof. One has to marble or brick tile the roof too. A lot of material especially tiles and marble is wasted somehow. Almost everyone burnt bore machine once. Plaster has to be done from outside and than charcoal painting ( Though it's of no use ) .

Your labour estimates are quite good except the paint one. You have not included the polish of wood work too. Paint material estimate is also on the edge. Number of bags of cement seems a lot less. Steel also seem less but it depends upon the map.

Have you included architectural fees if you are hiring one? Also approval of map if it's legal requirement.

You mentioned 70000 of guard. Would you be able to complete project in 7 months?

Insulation estimates seem good. My advise would be to opt for even cement floor if you have to decide between flooring finish and insulation. Marble and tiles can be installed later but insulation is extremely important. I hope you understand what I meant to say.

My style might be of probing, but it's just to help you. Most of the people would tell you that it's great estimate.

Unfortunately my laptop fell off from the hands of my kids and the HD had problem. Otherwise I had all data in percentage expense on all heads. Will try to recover data after Ramazan iA.

#26

Thanks BR Malik. I was hoping someone with experience will give some input.

Prices are always evolving and you can never predict how much it will increase. Although, I would like to mention that you can save some money on steel if you buy it from one of the factories in I-9. You can buy all the steel at once and they will deliver to you as needed.

You are right; I totally forgot to add marble for roof, terrace and porch. Considering if you use sunny white marble; it cost around 40-50/sqft. If total area of roof, terrace and porch is 1900 and if labour rate for that is 20/sqft; you will end up paying nearly 1.5 lac.

As far as I know burnt boring machine is not responsibility of home owner.

I have included plaster outside covered area in civil work labour. Most of the contractors had a same view about the charcoal or garam look. It’s a waste of time and money.

Regarding material estimates; I got those from different contractors. Most of them told me 850-900 cement bags will be enough. Same for other materials.

I will check how much wood polish is needed and how much is the labour rate.

I also forget to include architect rates. During my research, I came across 2 different kinds of architects i.e. Freelance architects and professional companies. Free-lance architects charge around 80,000 which include approval from CDA and all the structural, electric and public work drawings. Their work is done when they will give you the drawings. Professional architect companies charge around 250000-500000 but they will check and inspect work on site from time to time. I think if you are going for average construction you should hire a freelancer.

I think 7 months is ample time to finish work provided you supply all the material on time. I once saw a home built from ground up to finishing in 4-5 months. It was 30x70 and had a basement too.

I hope you can recover data from your HD and share with us cost of your home.

P.S: I have modified my original post to add architect fee and other things pointed out by BR Malik.

#27

Zol

read through this thread regarding 10 marla construction cost you will have some idea.... And this was for bahria town and its cheaper if not in bahria or dha...

http://www.zameen.com/forum/answers/construction_and_materials/construction_on_a_10_marla_plot-3440.html

and most of your prices are way over the top..... Have them checked out yourself rather than contractors... In some points there is a difference of rs 50,000 to

1 lacs...

#28

@Zol sb, the numbers seem low, atleast for some of the items, let's try to analyze one by one.

Starting with boring, 140,000 should be Ok.

45,000 bricks is Very very low for, I'm assuming plot size is 40x80 and you have two stories with an attic ( mumty); I would say that the bricks required will be around 80,000. Based on Internet research including Zameen.com forums number of bricks per cubic foot are 13.5. I think total volume of walls for 4,000 square foot will be in the range of 6000 cubic feet. Rate could go down to 7/ piece to 7.5/piece if you source bricks from brick kiln (bhatta); there are several bhattas in and around tarnol.

cement would be around 0.35/square foot which means requirement for your are would be more in the range of 1,400 bags to 1,500; you may take this down to 1200 bags but 900 looks bit on the lower side.

Get the Zameen App

Buy and Rent Property faster and better
using our app.
Scan the QR code to
get the app

Get Connected

© 2007– Zameen.com. All rights are reserved.